A 1st Quarter 2013 update of Holladay Properties

By John Phair, President & CEO (South Bend, IN)

This past week we held our 1st Quarter, 2013 Holladay partners meeting. This meeting was held at the headquarters in South Bend, after meeting a little over a month ago in our Nashville office.

Each quarter, Holladay partners are required to take stock! We take a look at every project, office and department. Likely, we are our own toughest critics. We attempt to build a consensus whether to:

• Start the pre-development process for a new project
• Consider an acquisition (land or existing building) for something we can “add value” to
• Sell a project we may have built last year, five years ago or over a decade ago
• Focus attention on fixing troubled assets — how can we get them back in shape or sell them or ??
• Change key vendors — property or health insurance, IT, communication or any number of others
• Make our limited resources available to provide equity where required
• Add to our Property Management portfolio

It is an exciting process, sometimes intense, almost always a little controversial. Out of that chaotic process, strong leadership generally forms a strong game plan and Holladay Properties moves ahead.

So where is the good news?

We have just kicked off our 61st year in business. Most of you have heard me sometime in the 56th year in business — or the 57th — 58th — 59th — or 60th — the message was the same. Very conservative development strategy, little to no hiring, raises? What raises? You know — you lived with that approach. We all did. Hang on, it will be better! Our access to capital was very limited for this entire period.

Finally, we are starting to see a slow, steady change. Banks are competing — again — for our business. More tenants are talking expansions than contractions. Raises — modest — are being considered for all strong performers. Hiring, not much, but replacements are being added.

Our pipeline of development activity is picking up — and looks better than it has in many years. After virtually disappearing for five years a few land sales are happening again.

And we have sold a couple of assets at prices we haven’t dreamed about for 4 — 5 years. Last, but not least, our troubled assets — and we still have them — is a shrinking pool. We hope to whittle the list to only a couple by year end.

We have many great examples of progress:

• Our construction arm may double their volume in 2013 vs. 2012.
• We will be breaking ground this next week in Merrillville, Indiana for a medical billing company, not a MOB, but an office building.
• With a little luck, we will close on four land sales in Indianapolis in the next 90 days and pay down our debt there by nearly $10 Million — a real achievement.
• We have two sales under our belt in 2013 in Richmond, Virginia and three more contracts signed.
• On April 22nd, we opened a just completed rehab for a new tenant in Nashville, Tennessee.
• We will open a 100,000 sq. ft. distribution center for a manufacturing company in June in South Bend, weathering the worst winter building conditions in years.
• We have high hopes of landing a couple of medical office management contracts by year end.

And the list goes on”¦

We will continue to be Careful, Frugal and Focused! The economy is inching forward, but it is no freight train!

Still some bad news.

One near-term threat is health insurance. After experiencing good results in our self-funded plan five of the last seven years, all our efforts to keep us healthy have not worked the way we had hoped this year. Insurance premiums will be going up for Holladay and insurance plan participants — and not a little! Same is true with property insurance. Best case here is an 8-9% increase in premiums on our whole portfolio. And”¦enough of the bad news.

Let’s enjoy the “slow, but sure” change of the economy. It ain’t great, but it is better — and we are poised with a terrific team to take advantage of it. Thanks to all for hanging in there. I hope, and expect, years 61 to 65 to be a real improvement.